Chapter 6: The Economic Impact of Immigration David Coates

This lack of any consistent pattern suggests again that the impact of immigration on economic variables turns on whether immigrant and native-born labor substitute or complement each other. The negative impact of immigration is therefore likely to be more potent at the bottom of the skills hierarchy where the competition for work is at its most intense. The question there is normally whether native-born Americans would do the work now done by illegal immigrants if – because of their absence – those jobs attracted higher wages. Given the nature of the beast, that is a difficult question to answer with any precision, though Borjas and his colleagues recently used their already-cited “skill group” analysis to suggest a 3.5% increase in black unemployment and a 1.6% increase in white unemployment from any 10% immigrant-induced increase in labor supply.⁴¹ That calculation remains controversial, but even economists normally critical of Borjas’ work have reported that in the late 1980s immigration depressed employment rates for “low-skilled natives and earlier immigrants in a typical major city by 1-2 percentage points, and by 3-5 times as much in high-immigrant cities like Los Angeles or Miami.”⁴² So some slight negative impact of immigration on the job prospects of unskilled native-born labor does seem likely.

What we know with greater certainty is that when low paying jobs done by immigrants are offered to native-born workers without significant increases in wages, there is plenty of anecdotal evidence of limited take-up; and that when illegal immigrants are driven from employment by tighter law enforcement, replacing those workers often proves extraordinarily difficult. We also know that, thus far at least, there are no occupational categories from which immigrants can be said to have driven all native-born labor. On the contrary, a recent detailed analysis of 473 separate occupations found that there are “virtually no occupations in which a majority of workers are immigrants, let alone illegal aliens.”⁴³ And economic theory would suggest that the pressure of migration on unemployment can be expected to be greatest in economies in which strong trade unions and high minimum wage thresholds block off wage-cutting as an alternative employer response. The United States is, of course, precisely not such an economy.

Moreover, one positive consequence of the presence of a hidden army of migrant labor – a positive for the official statistics at least – is that economic downturns do not inflate the official rate of unemployment as rapidly as might be expected, since many of the workers laid off do not, and cannot, register for unemployment relief. Illegal immigration, therefore, brings hidden unemployment as well as hidden employment: hidden unemployment imperfectly captured by the fall in the volume of remittances sent home by migrant labor. In the first half of 2006, the $23 billion volume of annual remittances flowing into Mexico was still rising at a rate of 26% a year. Twelve months and one recession later, the growth rate of those remittances stood at just 0.6%.⁴⁴ The drying up of that flow cannot have been accidental.

The households of legal immigrants still remain, however, heavier users of welfare programs overall than do the households of the native-born. 33% of immigrant-headed households currently use at least one major welfare program, as against 19% of native-headed households. This simply reflects the disproportionate representation of first-generation immigrant families in the ranks of the American poor; but then first generation immigrants are invariably poorer on average than the indigenous population. That poverty invariably fades as later generations experience both integration and social mobility; so as immigrant children and grandchildren rise socially and economically the initial modest fiscal burden of immigration normally gives way to a modest fiscal surplus. All the major studies that examine the economic impact of immigration over time, with the exception of those carried out by the Heritage Foundation (for which, see Chapter 12 of this volume), “suggest a modest positive influence on average. The fiscal impact of skilled immigrants is more strongly positive.”⁴⁸ The NRC estimated that skilled immigrants make a positive contribution through their own earnings, and then through that of their children. The unskilled take longer. They are still in net deficit at the end of generation two, but the net loss is by then small and declining.⁴⁹

Undocumented workers have no right to receive public benefits of any kind. Their children, however, are a different matter. Children born here, even to parents who are themselves illegally here, acquire citizenship by nature of their birthplace. With their parents earning little, those children become eligible for Medicaid and SCHIP: and their rate of participation in those programs is rising – from 45-47% in 1995 to 53-54% in 2005.⁵⁰ The burden of illegal immigration on US welfare services – and hence on native-born tax-payers – is thus particularly concentrated on the very young, and therefore on the school system. Of the 50 million students in the public school system, currently 8.5 million are Latino. Illegal immigrant households are disproportionately young households. Pew estimated that in 2005 there were 1.8 million children in the unauthorized population, plus an additional 3.1 million citizen-children living in unauthorized families.⁵¹ Those children put significant pressure on already over-stretched school systems in many states, particularly the eight that receive probably two-thirds of all undocumented immigrants. In 2000, 43.4% of all school-age children in California had an immigrant mother. The Florida figure was 28.1% and New York’s was 27.1%.⁵² It is at the state level that the fiscal burden of illegal immigration is at its greatest.

The only counter-weight to that burden is the volume of taxation paid by illegal immigrants. Many have false papers, and make contributions to the Social Security fund (from which they will never draw themselves). The Social Security Administration estimates that the majority of funds paid in under names or Social Security numbers that don’t match their records comes from undocumented workers. By October 2005 those funds totaled $520 billion.⁵³ All undocumented workers pay sales tax and indirectly property tax (through their rents). As many as one half to three-quarters of them work on false papers, and so pay income tax and Medicare taxes. The commodities they help to produce also garner additional sales taxes, so that when all this hidden tax-paying is factored in, the fiscal burden they trigger – though real – is significantly diminished. Just how diminished remains in dispute, and largely turns on who is doing the counting. Jack Martin from the Federation for American Immigration Reform recently estimated the fiscal cost of illegal immigration in California at $9 billion a year, and in New York State at $4.5 billion. Local immigrant advocacy groups challenged the accuracy of both those claims. They were more comfortable with studies like that carried out in North Carolina in 2006, which found the state’s growing Hispanic population – half of which is thought to be undocumented – contributing more than $9 billion to the local economy through purchases, taxes and labor, while costing the state budget a net $102 per Hispanic resident in health care, education and jail expenditure. Likewise, Oregon, where a 2007 study estimated taxation from and by undocumented immigrant labor as totaling anywhere between $231 million to $323 million: this in a state in which undocumented workers are ineligible for SCHIP, food stamps or even temporary cash assistance.⁵⁴

One final addition to the fiscal cost-benefit analysis has to be the cost to the taxpayer of locating, detaining and deporting all illegal immigrants. The head of Immigration and Customs Enforcement was asked for that cost at a Senate hearing in September 2007. Her answer: “our agency has estimated that it would cost at least $94 billion.”⁵⁵ The Center for American Progress has the figure higher: $230 billion over 5 years.⁵⁶ Either way, it is a huge sum.